The debt settlement pitch is always about the outcome. Settle for pennies on the dollar. Get out from under it in thirty-six months. One monthly payment instead of nine.
Minnesota law is almost completely uninterested in that pitch. It regulates something else entirely, and the thing it regulates is the only thing a court will ever have to decide.
The Minnesota statute governs the fee schedule, not the promise. Which means the question in a Minnesota debt settlement dispute is almost never whether the plan worked. It is whether the provider was registered, and whether it took money before it was entitled to.
First, know which chapter you are in
Minnesota has two adjacent chapters, and consumers routinely do not know which one their contract falls under.
Chapter 332A — debt management services. The provider takes a monthly payment from you and disburses it to your listed creditors under a plan. Debts get paid, generally in full, on modified terms. This is the successor to what Minnesota used to call a “debt prorater.”
Chapter 332B — debt settlement services. The provider negotiates with creditors “to obtain a settlement for less than the full amount of debt,” or advises you “to accumulate funds in an account for future payment of a reduced amount of debt.” Debts get compromised, not paid.
The definition at § 332B.02, subd. 10 is broad in a way that matters. It reaches offering to advise, offering to act, and acting; it reaches negotiation with the federal or state government over delinquent taxes; and it closes with:
“Any person so engaged or holding out as so engaged is deemed to be engaged in the provision of debt settlement services, regardless of whether or not a fee is charged for such services.”
The provider definition is jurisdictionally aggressive on purpose. Under § 332B.02, subd. 13, a “debt settlement services provider” is “any person offering or providing debt settlement services to a debtor domiciled in this state, regardless of whether or not a fee is charged for the services and regardless of whether the person maintains a physical presence in the state,” and it “includes any person to whom debt settlement services are delegated.” An out-of-state call center is squarely inside the chapter.
Registration is not optional. Under § 332B.03, since August 1, 2009 it has been “unlawful for any person, whether or not located in this state, to operate as a debt settlement services provider or provide debt settlement services including, but not limited to, offering, advertising, or executing or causing to be executed any debt settlement services or debt settlement services agreement, except as authorized by law, without first becoming registered as provided in this chapter.” Chapter 332A carries a parallel requirement running from August 1, 2007.
The fee timing rule is the center of the statute
Everything else in chapter 332B is scaffolding around Minn. Stat. § 332B.09.
Subdivision 1 lets the provider choose one of two fee structures — percentage of debt, or percentage of savings — and requires that the choice “shall be clearly disclosed and explained in the debt settlement services agreement.”
Subdivision 2 caps both:
“(1) for fees calculated on a percentage of debt basis, no greater than 15 percent of the aggregate debt; and (2) for fees calculated on a percentage of savings basis, no greater than 30 percent of the savings actually negotiated by the debt settlement services provider.”
And it defines savings so the arithmetic cannot be gamed: the difference between the aggregate debt stated in the agreement at execution and what the debtor actually pays to settle all the debts in it, “provided that only savings resulting from concessions actually negotiated by the debt settlement services provider may be counted.”
Subdivision 3 is the provision to read twice:
“A debt settlement services provider may not impose or collect any payment pursuant to a debt settlement services agreement before the debt settlement service provider has fully performed all of the following: (1) the debt settlement services contained in the agreement; and (2) any additional services the debt settlement services provider has agreed to perform.
If more than one debt is the subject of the debt settlement services agreement, a debt settlement services provider may only charge or collect that proportion of total fees allowable under this section that equals the proportion of the aggregate debt the individual settled debt represents.“
No payment before performance, and on a multi-debt plan, payment only in the proportion the settled debt bears to the total. That second sentence is what stops a provider from front-loading its whole fee onto the first small account it settles.
Subdivision 4 shuts the side doors: “No fees, charges, assessments, or any other compensation may be claimed, demanded, charged, collected, or received other than the fees allowed under this section. Any fees collected in excess of those allowed under this section must be immediately returned to the debtor.”
Two more timing duties sit in the same section. When a creditor withdraws from a plan, the provider must notify the debtor, identify the creditor, and explain the right to modify — or, if at least 50 percent of the listed creditors withdraw, the right to cancel — and “[i]n no case may this notice be provided more than 15 days after the debt settlement services provider learns of the creditor’s decision to withdraw from a plan” (subd. 5). And under subd. 6, the provider “must make all reasonable efforts to notify the debtor within 24 hours of a settlement offer made by a creditor.”
Chapter 332A and chapter 332B, side by side
| Ch. 332A — debt management | Ch. 332B — debt settlement | |
|---|---|---|
| What the provider does | Takes periodic payments, disburses to listed creditors under a plan | Negotiates a compromise for less than the full amount owed |
| Registration | Required since Aug. 1, 2007 (§ 332A.03) | Required since Aug. 1, 2009, physical presence irrelevant (§§ 332B.03, 332B.02, subd. 13) |
| Up-front fee | Nonrefundable origination fee of not more than $50 (§ 332A.13, subd. 1) | None — no payment at all before full performance (§ 332B.09, subd. 3) |
| Ongoing fee | Periodic fee that must be reasonable and may not exceed the lesser of 15% of the monthly payment or $75 (§ 332A.13, subd. 2) | 15% of aggregate debt, or 30% of savings actually negotiated (§ 332B.09, subd. 2) |
| Share of each payment | No more than 15% retained; the other 85% must go to listed creditors (§ 332A.13, subd. 4) | Fee earned only in proportion to the debt actually settled (§ 332B.09, subd. 3) |
| Other fees | None beyond origination and monthly maintenance (§ 332A.13, subd. 3) | None; excess must be “immediately returned” (§ 332B.09, subd. 4) |
| Debtor’s cancellation right | Any time, without cause, on 10 days’ written notice (§ 332A.11, subd. 1) | Any time, without cause, on 10 days’ written notice (§ 332B.07, subd. 1) |
| Required notice on the contract | “Right To Cancel: You have the right to cancel this contract at any time on ten days’ written notice.” (§ 332A.11, subd. 2) | “Right to Cancel: You have the right to cancel this contract at any time on ten days’ written notice.” (§ 332B.07, subd. 2) |
| Statutory damages | Up to $1,000, individual action (§ 332A.18, subd. 2(a)) | Up to $5,000, individual action (§ 332B.13, subd. 2(a)) |
| Attorney fees | Yes, to a successful plaintiff or class (§ 332A.18, subd. 2(d)) | Yes, to a successful plaintiff or class (§ 332B.13, subd. 2(d)) |
| Status under § 8.31 | A violation “is considered an unfair or deceptive trade practice under section 8.31, subdivision 1” (§ 332A.18, subd. 1) | Same (§ 332B.13, subd. 1) |
The promise is not just unenforceable — making it is a violation
Here is why a Minnesota debt settlement case is rarely about the outcome. Section 332B.10 makes the outcome promise itself unlawful. A debt settlement services provider shall not:
“(2) promise, guarantee, or directly or indirectly imply, infer, or in any manner represent that any debt will be settled prior to the presentation to the debtor of an offer by the creditors participating in the debt settlement services plan to settle;”
The same section forbids misrepresenting “the timing of negotiations with creditors” (clause (3)); implying that fees and interest will stop accruing, that wages or bank accounts are not subject to garnishment, that creditors will stop contacting the debtor, that the debtor is not subject to legal action, or that forgiven debt carries no tax consequences (clause (4)); representing that a settlement plan will have no effect on or will improve the debtor’s credit score (clause (7)); challenging a debt “without the written consent of the debtor” (clause (8)); falsely representing “that the debt settlement services provider can negotiate better settlement terms with a creditor than the debtor alone can negotiate” (clause (10)); and providing legal advice or legal services without a license (clause (11)).
And clause (13) forbids settling a debt or leading a debtor to believe a payment settles it “unless, at the time of settlement, the individual receives a certification from the creditor that the payment is in full settlement of the debt.”
A statute that prohibits the promise has decided the promise is not the cause of action. What is left is compliance: registration, disclosure, and money.
What has to happen before you sign
Chapter 332B front-loads the diligence. Under § 332B.06, subd. 2, no one may provide debt settlement services or execute an agreement without first having:
- Told you in writing that debt settlement is not for everyone — specifically, “that debt settlement is not appropriate for all debtors and that there are other ways to deal with debt, including using credit counseling or debt management services, or filing bankruptcy”;
- Prepared and given you a written individualized financial analysis, in a form you may keep, supporting determinations that the plan “is suitable for the individual debtor,” that you “can reasonably meet the requirements” of it, and that “based on the totality of the circumstances, there is a net tangible benefit to the debtor of entering into the proposed debt settlement services plan”; and
- Given you, on a separate document, the total amount and an itemization of fees, including origination, monthly, and settlement fees reasonably anticipated over the term.
Under subd. 3, before executing anything the provider must determine, “supported by sufficient bases,” which of your listed creditors are reasonably likely to participate and which are not — and must obtain your written authorization to proceed if not all listed creditors are likely to participate.
And under subd. 4, the provider must deliver, orally and in writing, “on a single sheet of paper, separate from any other document or writing,” this verbatim notice:
“CAUTION
We CANNOT GUARANTEE that you will successfully reduce or eliminate your debt.
If you stop paying your creditors, there is a strong likelihood some or all of the following may happen:
• YOUR WAGES OR BANK ACCOUNT MAY STILL BE GARNISHED.
• YOU MAY STILL BE CONTACTED BY CREDITORS.
• YOU MAY STILL BE SUED BY CREDITORS for the money you owe.
• FEES, INTEREST, AND OTHER CHARGES WILL CONTINUE TO MOUNT UP DURING THE (INSERT NUMBER) MONTHS THIS PLAN IS IN EFFECT.
Even if we do settle your debt, YOU MAY STILL HAVE TO PAY TAXES on the amount forgiven.
Your credit rating may be adversely affected.“
The formatting is statutory, not stylistic: the heading “CAUTION” must be “in bold, underlined, 28-point type,” the remaining text in 14-point type, “with a double space between each statement” (subd. 4(c)). A provider either handed you that sheet or it did not, and the answer is in your file.
The agreement itself must carry, on the front page, “segregated by bold lines from all other information on the page and disclosed prominently and clearly in bold print,” the total and itemization of fees (subd. 5(a)), plus a statement of the cancellation terms, a detailed description of all services, the refund policy, a principal business address that “must not be a post office box,” and the name of each listed creditor with the aggregate debt owed to it (subd. 5(b)).
Getting out
Cancellation. Under § 332B.07, subd. 1(a), “[a] debtor has the right to cancel a debt settlement services agreement without cause at any time upon ten days’ written notice to the debt settlement services provider.” Within ten days the provider must notify the creditors it has been communicating with and “immediately refund all fees paid by the debtor… that exceed the fees allowed under section 332B.09,” and must stop collecting monthly fees beginning the following month.
There is a carve-out, and it is fair: under subd. 1(d) the provider keeps its full contract fee if it can show it obtained a settlement offer in accordance with the agreement, the debtor rejected it, or the debtor separately settled with the same creditor for an equal or lower amount within the contemplated period. You cannot use the provider’s work and then cancel around the fee.
Rescission for a material violation. This is the sharper remedy, and it is one sentence long. Section 332B.12:
“Any debtor has the right to rescind any debt settlement services agreement with a debt settlement services provider that commits a material violation of this chapter. On rescission, all fees paid to the debt settlement services provider or any other person other than creditors of the debtor must be returned to the debtor entering into the debt settlement services agreement within ten days of rescission of the debt settlement services agreement.”
Note what does not appear: any requirement that the debtor prove the plan failed, or prove damages, or prove reliance. Material violation, rescission, full return of fees within ten days.
Automatic termination. Under subd. 3, on payment of all listed or settled debts and fees the agreement terminates automatically and all funds held above allowable fees “must be immediately returned to the debtor.”
The private remedy is real, and it is fee-shifting
Section 332B.13 does three things worth knowing.
Subdivision 1 declares that a violation of any provision of the chapter “is considered an unfair or deceptive trade practice under section 8.31, subdivision 1,” and adds — unusually, and helpfully — that “[a] private right of action under section 8.31 by an aggrieved debtor is in the public interest.” The Legislature answered the public-benefit question in the statute rather than leaving it to be litigated case by case.
Subdivision 2 gives a direct action. A provider that “fails to comply with any of the provisions of this chapter,” or a lead generator that violates the advertising and solicitation section, is liable in an individual action for actual, incidental, and consequential damages plus statutory damages of up to $5,000, with class treatment available, and “[a] plaintiff or class successful in a legal or equitable action under this section is entitled to the costs of the action, plus reasonable attorney fees.”
Subdivision 3 provides injunctive relief on a showing of violation, and subdivision 4 makes the remedies cumulative: “The provisions of this chapter are not exclusive and are in addition to any other requirements, rights, remedies, and penalties provided by law.”
Chapter 332A’s remedies section, § 332A.18, is built the same way, with statutory damages capped at $1,000 rather than $5,000.
A note on what this article is not about
Debt settlement is not consumer legal funding — money advanced to a plaintiff against the potential proceeds of a pending lawsuit. That is a different transaction, with different parties, a different source of repayment, and a different body of law. Nothing here addresses it.
What to do
- Find out whether the company is registered with the Minnesota Department of Commerce, and under which chapter. Registration status is a threshold fact, and §§ 332A.03 and 332B.03 make unregistered operation unlawful outright.
- Pull the whole file before you conclude anything. The agreement, the separate fee itemization sheet, the separate CAUTION sheet, the individualized financial analysis, the creditor-participation determination, and every fee receipt. Chapter 332B is proved with documents that either exist or do not.
- Reconstruct the fee timeline. When did each payment leave your account, and what had actually been settled at that moment? Section 332B.09, subd. 3 turns on that sequence and nothing else.
- Check the proportionality. On a multi-debt plan, compare the fee taken on each settlement to that debt’s share of the aggregate debt stated in the agreement.
- Add up everything you paid and compare it to the caps in § 332B.09, subd. 2 — 15 percent of aggregate debt, or 30 percent of savings actually negotiated. Amounts above that “must be immediately returned.”
- Cancel in writing. Both chapters key the right to ten days’ written notice. A phone call to a retention department is not notice.
- Do not assume the tax consequence away. Section 332B.06, subd. 4 requires the provider to warn you that forgiven debt may be taxable, and § 332B.10(4)(v) makes it a violation to suggest otherwise. That warning is there because it is frequently true.
- Get the creditor’s certification at settlement. Section 332B.10(13) requires it — a certification from the creditor that the payment is in full settlement. Without it you may have paid on a debt that is still owed.
- Bankruptcy is on the list for a reason. Section 332B.06, subd. 2(1) requires the provider itself to tell you it is an option. For some debt loads it is the cheaper and faster answer, and a Minnesota consumer bankruptcy lawyer can tell you which situation you are in.
The observation
Minnesota did something quietly clever in chapters 332A and 332B. It did not try to regulate whether a debt settlement plan is a good idea — a judgment that depends on facts no legislature can specify in advance. It regulated the moment of payment.
The consequence is that the enforceable question in almost every Minnesota debt settlement dispute is arithmetic and chronology, not persuasion. Was the provider registered. Was the CAUTION sheet delivered on its own page. Was the fee itemization on its own document. Did money move before performance. Did the fee exceed 15 percent of the aggregate debt, or 30 percent of negotiated savings. Was the fee proportional to the debt actually settled.
Every one of those is answerable from the file, and none of them requires proving that the plan failed. A statute drafted that way is a statute meant to be enforced by ordinary people with ordinary records — which is also why it carries statutory damages and fee-shifting.
If a debt settlement plan left you worse off, the temptation is to build the complaint around the broken promise. The statute has already told you not to. Build it around the money.
Madgett Law, LLC represents Minnesota consumers in disputes with debt settlement and debt management companies, and in the collection lawsuits and credit reporting problems that follow a failed plan. If you paid a debt relief company and want the file reviewed, send us a message or call 612-470-6529.
Sources: Minn. Stat. ch. 332B (debt settlement services), including § 332B.02, subds. 4, 10, 11, 13, 14 (definitions of aggregate debt, debt settlement services, agreement, provider, lead generator); § 332B.03 (registration requirement effective Aug. 1, 2009); § 332B.06, subds. 1–8 (written agreement; actions prior to executing an agreement; creditor-participation determination; disclosures, including the verbatim CAUTION notice and its 28-point/14-point formatting; required terms; prohibited terms; modifications; funds held in trust for no longer than 42 days); § 332B.07, subds. 1–4 (right to cancel on ten days’ written notice; required contract notice; automatic termination; provider’s right to cancel on 30 days’ notice for good cause); § 332B.09, subds. 1–6 (choice of fee structure; 15 percent of aggregate debt / 30 percent of savings caps; no payment before full performance and proportionality on multi-debt plans; fees exclusive; creditor withdrawal notice within 15 days; settlement-offer notice within 24 hours); § 332B.10 (prohibitions, clauses (1)–(13)); § 332B.12 (rescission for material violation; return of fees within ten days); § 332B.13, subds. 1–5 (violation as deceptive practice under § 8.31, subd. 1; private right of action with actual, incidental, and consequential damages plus statutory damages up to $5,000; injunctive relief; cumulative remedies; attorney general enforcement). Minn. Stat. ch. 332A (debt management services), including § 332A.03 (registration requirement effective Aug. 1, 2007); § 332A.11, subds. 1–4 (right to cancel); § 332A.13, subds. 1–9 (origination fee not more than $50; monthly maintenance fee not to exceed the lesser of 15 percent of the monthly payment or $75; no additional fees; 15 percent retention cap with 85 percent disbursed to creditors; advance payments; consent of creditors; withdrawal; trust account; disbursement within 42 days); § 332A.18, subds. 1–5 (enforcement and remedies; statutory damages up to $1,000; costs and reasonable attorney fees). Minn. Stat. § 8.31, subds. 1, 3a (Minnesota Office of the Revisor of Statutes). This article is general legal information, not legal advice, and reading it does not create an attorney–client relationship. Statutes change; verify current text before relying on it. No outcome is promised or implied.